FTSE launches two new EM indexes that include China’s A-shares

FTSE Group has launched two new transitional emerging markets indexes that include China’s A-shares, a move seen as paving the way for eventual inclusion of the stocks in global benchmarks.

The A-shares, which are stocks domestically traded in China, will initially have a 5 percent weighting in the new transitional indexes.

The move comes at a time when another global index provider, MSCI, is set to announce next month its own decision on whether A-shares will be included in the MSCI Emerging Market index.

“I think they (MSCI) will face a lot of pressure following the FTSE move,” Mark Makepeace, chief executive of FTSE Group, said on Tuesday. “It will be very difficult for them not to follow us.”

As A-shares get included in emerging markets indexes, international investors will display more appetite for Chinese equities, he said.

The weighting of A-shares in the new indexes – FTSE Emerging Markets China A Inclusion Index and FTSE Emerging Markets All cap China A Inclusion Index – has been arrived at based on the total allocations for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII).

The indexes will merge with the standard FTSE Emerging Markets indexes when China resolves the issues related to capital mobility and settlement and clearing in its capital market, FTSE Group said.

The current 5 percent weighting in the indexes will be increased gradually as China boosts the investment quotas under the QFII and RQFII programs.

Chinese stocks are expected to account for 32 percent of the indexes when the A-share market becomes fully available to international investors.

Review of the weighting is carried out quarterly. The next review is slated for September.

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